RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Posted on Dec 21, 2022, 08:03 by Dave Toth

Overnight’s break above last week’s 77.77 initial counter-trend high reinforces an interim bullish count introduced in 13-Dec’s Technical Webcast and leaves Fri’s 73.343 low in its wake as the latest smaller-degree corrective low this market now needs to sustain gains above to maintain a more immediate bullish count.  Its failure to do so will render the recovery attempt from 09-Dec’s 70.08 low a 3-wave and thus corrective affair that would then re-expose this year’s major reversal lower.  Per such, this 73.33 level serves as our new short0-term risk parameter from which shorter-term traders with tighter risk profiles can objectively base non-bearish decisions like short-covers and cautious bullish punts.

Moving out to a daily log scale basis above, today’s break above last week’s 77.77 initial counter-trend high confirms a bullish divergence in daily momentum, but of a scale that only allows us to conclude the end of the portion of this year’s bear trend from 01-Dec’s 83.34 larger-degree corrective high.  To break even Nov-Dec’s downtrend, let alone threaten the 6-month, 43% meltdown from Jun’s 123.68 high, this market is still required to recoup that 83.34 larger-degree corrective high and key bear risk parameter pertinent to longer-term commercial players.  In effect, the short-term trend is up within the long-term trend that remains arguably down.

Indeed, only a glance at the weekly log close-only chart below is needed to see 1) this year’s major reversal and downtrend and 2) that the market remains below former 79-handle-area support-turned-resistance.  With our RJO Bullish Sentiment Index showing a still-bullishly-skewed 80% level reflecting 234K Managed Money long positions reportable to the CFTC vs only 58K shorts, this indicator continues to warn of downside vulnerability until/unless mitigated by a recovery above at least 83.34.  If/when the market does prove 83.34+ strength, the correction of Jun-Dec’s collapse could be a sizeable one.  But we can only cross that bridge if/when the market takes us there.  In the meantime, traders are urged to adhere to the important technical and trading matter of SCALE and manage risk commensurate with one’s personal risk profile.

The short- and long-term risk parameters discussed above at 73.33 and 83.34 may come in particularly handy given this market’s return to deep, deep within the middle-half bowels of its massive historical lateral range shown in the monthly log chart below, where the odds of aimless whipsaw risk are approached as higher, warranting a more conservative approach to risk assumption.  From current range-center levels, $20 swings both ways should not come as a surprise.  It’s against this prospective backdrop of high volatility that specific risk definition is crucial.  The period ahead- say 3-to-6-months- could be extremely volatile.  Both short- and long-term traders should not be surprised by such volatility and are advised to manage directional exposure with specific risk parameters commensurate with their personal risk profiles.

These issues considered, a cautiously bullish policy and exposure remain advised for shorter-term traders with a failure below 73.33 required to negate this call and warrant its cover.  Longer-term commercial players remain OK to maintain a cautious bearish policy with a recovery above 83.34 required to negate this call and warrant its cover.

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